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With perhaps thousands of federal employees having to leave federal service as a result of reductions-in-force (RIFs), the question becomes for many: How to access their Thrift Savings Plan accounts? In column one of a two-part series, Ed Zurndorfer discusses how separated federal employees younger than age 55 can make penalty-free TSP withdrawals. Presented in this column is the TSP annuity ...

This bit of information regarding the penalty-free provision at age 55 is often a big surprise to both near-retirees and federal retirees since 59 ½ is a mantra repeated so often that it seems to be law. Most times, it is law, but not in the case of TSP if a federal employee separated from federal service at age 55.

How SCEs Can Utilize the Rule of 55 ‍ Withdraw at Age 50 – Unlike regular employees, SCEs can start penalty-free withdrawals from TSP at age 50. Avoid Rolling Over TSP Funds – If an SCE rolls over their TSP to an IRA, they may lose their early withdrawal benefits and be subject to the standard IRA withdrawal rules (age 59½).

If you are not age 55 or older in the year you separate, the IRS early withdrawal penalty will apply to most TSP withdrawals and all loan distributions received before age 59½. Because tax rules are complex, you may want to speak with a tax advisor before taking money

The ability to avoid the early withdrawal penalty if you separate in the year you turn 50 or 55 only applies if you leave your money in the TSP – rollovers are subject to the penalty.

So, let’s say a federal employee retires at age 57 and qualifies to avoid the 10% penalty on their TSP withdrawals. If they decided to transfer their TSP to an IRA, they would inadvertently subject their funds to IRA rules which do not include the age 55 (or 50) exception. Thus, they would lose their ability to take penalty-free withdrawals.

The Rule of 55 enables you to start taking penalty-free TSP distributions when you retire in the year you turn age 55. And, contrary to rumors, there’s no years-of-service requirement. It also applies to a 401(k) your spouse may have through their current employer.

Ed Zurndorfer discusses the exceptions that allow a federal employee to make withdrawals from their traditional Thrift Savings Plan or from a traditional IRA before age 59.5 and not be subject to an early withdrawal penalty. ... any amount from their TSP/IRAs penalty-free. ... service during/after the year the participant reaches age 55; (2 ...

Federal employees who exit service before age 55 can opt for monthly withdrawals from their traditional Thrift Savings Plan (TSP) based on their life expectancy. When executed correctly, these monthly payments avoid the 10% early withdrawal penalty, though they remain fully taxable. These monthly payments can provide steady support to help with living expenses and

2. The Age 55 Rule: For Those Retiring Early. Federal employees who retire (or separate from federal service) in the year they turn 55 or older qualify for an exception to the early withdrawal penalty. This is known as the “Age 55 Rule.” If you plan to retire at age 55 or beyond, you can access your TSP funds without the 10% penalty.

Here’s a little-known loophole: If you separate from federal service during or after the year you turn 55 (or 50 if you’re a special category employee, like a firefighter or air traffic controller), you can take penalty-free withdrawals from your TSP. This is called the “Age 55 Rule.”

At age 59 ½, TSP participants may begin penalty-free withdrawals. However, regular income taxes still apply to traditional TSP withdrawals, while Roth TSP withdrawals remain tax-free if certain conditions are met, such as holding the account for at least five years. ... Separation from Service at Age 55 or Older: Employees who separate from ...

By and large, TSP expenses are lower than IRA expenses and the TSP charges no annual fees. Penalty free withdrawals are allowed as early as age 55 (age 50 or 25 years of qualifying service for ...

Pre-Age 55 Penalty-Free TSP Withdrawals: Partial Rollover of a Traditional TSP Account to a Traditional IRA. 10 Costly TSP and IRA Rollover Errors Federal Employees and Retirees Should Avoid. Rolling Over a Portion of the Traditional TSP to a Traditional IRA.

Anyone leaving service in the year they turn 55 has access to their TSP without penalty. There is no requirement for years of service that needs to be met. Misconception #2 – I will have access to my IRA at age 55. This is inaccurate as well. Access to IRAs begins at age 59.5. The only way to access your IRA before that age is to set up 72t ...

Age Milestones for TSP Withdrawals. Here are some age-related milestones to keep in mind: Age 55: If you separate from federal service in or after the year you turn 55, you may withdraw from your TSP without the 10% early withdrawal penalty. Age 59½: Once you reach this age, you can take penalty-free withdrawals regardless of your employment ...

TSP Withdrawal Penalty at Age 55: The Federal Employee Exception The age 55 exception is a valuable benefit for federal employees. If you separate from service in the year you turn 55 or later, you can withdraw funds from your TSP without incurring the 10% early withdrawal penalty.

In fact, most federal employees are aware of the age restriction that imposes a penalty on TSP withdrawals before age 59 ½; however, many are unaware of the exceptions to this rule. ... For instance, an important point to keep in mind is that, unlike the TSP, IRAs do not waive the 10% penalty at age 55 or 50. So, let’s say a federal employee ...

The Rule of 55 allows penalty-free withdrawals from a past employer's 401(k) or 403(b) if you leave your job during or after the year you attain age 55. Qualifying withdrawals under the Rule of 55 avoid penalties but may still incur taxes. Early withdrawals can reduce your retirement savings growth potential.